What Determines Mortgage Rates in Canada?


A generation ago, it wasn’t uncommon to see mortgage rates top double digits. But for a good portion of the last decade, the rates have remained historically low. While it’s hard to predict mortgage rates in the future, it is worth looking at their history. Let's take a look at what influences the fluctuation of rates.


Variable Mortgage Rates

Variable mortgage rates are determined by commercial banks’ prime rates, which are mainly swayed by the Bank of Canada’s key interest rate. The Bank of Canada will typically raise its key interest rate in an effort to combat inflation and decrease it in an effort to stabilize the economy.


Fixed Mortgage Rates

Fixed rate mortgages are primarily influenced by the yield on Canadian government bonds (bond yields) of corresponding maturity. The correlation between the fixed rates and the yield on five year Canadian government bonds is almost a near match. this is the case because bond rates represent the benchmark for financial institutions cost of funds.


Factors Influencing Bond Yields

There are a number of factors that influence government bond yields. Since they are guaranteed by the Canadian government, these bonds are generally among the least perilous assets. Since a large amount of bonds are traded daily in the market, the supply and demand game in the bond market determines their price, and therefore their yield.


Understanding of Mortgage Rates and what determines them can be confusing. Seeking advice and assistance from a mortgage professional will ensure you get simple, easy-to-understand answers to all your questions. Contact me for support and guidance through your mortgage journey.

Bailey Coats

Mortgage Broker

Lic. #316964

Straightforward Mortgages Across The Lakeland & Surrounding Communities

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